Strategies to Manage Mortgage, Student, Credit Card and Business Loans

Tuesday, December 21, 2010

DEBT DEFENSE MUST READ ALERT : Is It Possible To Face Jail For Not Paying A Debt?

This is a long post but it is worth the time to read everything.

This post is based on a story written in The Home Equity Theft Reporter. The Home Equity Theft Reporter is a must read for people seeking to protect their home, cash, and investments from improper debt collection and foreclosure practices.

The Minneapolis Star Tribune reported that a 57 year old woman was arrested while driving home. At first she did not know why. After being placed into a county jail she learned that she was arrested for missing a court date over a lawsuit for an unpaid debt. The following are excerpts from the article:

"It's not a crime to owe money, and debtors' prisons were abolished in the United States in the 19th century. But people are routinely being thrown in jail for failing to pay debts. In Minnesota, which has some of the most creditor-friendly laws in the country, the use of arrest warrants against debtors has jumped 60 percent over...Not every warrant results in an arrest, but in Minnesota many debtors spend up to 48 hours in cells with criminals. Consumer attorneys say such arrests are increasing in many states, including Arkansas, Arizona and Washington, driven by a bad economy, high consumer debt and a growing industry that buys bad debts and employs every means available to collect."

"Whether a debtor is locked up depends largely on where the person lives, because enforcement is inconsistent from state to state, and even county to county. In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man "to indefinite incarceration" until he came up with $300 toward a lumber yard debt."

"Three debt buyers -- Unifund CCR Partners, Portfolio Recovery Associates Inc. and Debt Equities LLC -- accounted for 15 percent of all debt-related arrest warrants issued in Minnesota since 2005,court data show. The debt buyers also file tens of thousands of other collection actions in the state, seeking court orders to make people pay. The debts -- often five or six years old -- are purchased from companies like cellphone providers and credit card issuers, and cost a few cents on the dollar."

"Few debtors realize they can land in jail simply for ignoring debt-collection legal matters. Debtors also may not recognize the names of companies seeking to collect old debts. Some people are contacted by three or four firms as delinquent debts are bought and sold multiple times after the original creditor writes off the account."

The Indiana Court of Appeals has now struck down the local county court rule that imposed contempt sanctions, including imprisonment, for debtors who failed to pay small claims judgments on ordinary civil debts. The county court rule provided for a "personal order of garnishment," which, unlike ordinary garnishment orders directed at third parties like banks and employers, would order the debtor herself to turn over any non-exempt funds in the debtor's possession, regardless of whether such funds actually existed. The disabled and indigent defendant in the case at issue was found in contempt and ordered to serve 30 days in jail for failing to pay $10 monthly on a $445 judgment, despite not having any non-exempt assets or income...The Court of Appeals cited the Indiana Constitution's provision that "there shall be no imprisonment for debt, except in case of fraud, " and voided the local court procedures."

Two reports published by NYU's Brennan Center for Justice and the American Civil Liberties Union (ACLU) reveal a rising trend of patently unconstitutional practices in cash-strapped states, where a growing number of impoverished people are jailed for being unable to pay their legal fees - including charges for use of public defenders, a guaranteed right in the United States. The resurgence of these draconian "debtors' prisons" has been documented in at least 13 of the 15 states with the largest prison populations in the country, including California, Arizona, Michigan and Alabama.

"Incarcerating people simply because they cannot afford to pay their legal debts is not only unconstitutional but also has a devastating impact upon men and women whose only crime is that they are poor," said ACLU senior staff attorney Eric Balaban.

Many states view the fees as a method for helping to alleviate budget deficits. In New Orleans, Louisiana, legal fines comprise almost two-thirds of criminal courts' operating budgets. But the ACLU found in its report, 'In for a Penny: The Rise of America's New Debtors' Prisons,' that jailing individuals for failing to pay legal fees actually places the financial burden on the state, wasting taxpayer money and resources. to keep those individuals in jail or on public welfare as they struggle to pay their overwhelming debts."

"The ACLU report highlights a few exemplary cases. Gregory White, a homeless man in Louisiana, was arrested for stealing $39 worth of food from a grocery store and assigned $339 in legal fees; when he was jailed for being unable to pay, White spent 198 days in jail at a cost of $35,000 to the city. Georgia resident Ora Lee Hurley owed $705 in fines from a 1990 drug possession conviction and remained in jail for eight months for failing to pay. Kawana Young, a 25-year-old single mother in Michigan, was told after the fact that her community service hours would not satisfy her debts because she had volunteered with a nonprofit organization. Young has since been jailed five times for being unable to pay her fees."

[D]ebt collectors contact consumers approximately four billion times a year...[b]ut the persistent phone calls and dunning letters that collection agencies deploy on debtors only pack so much punch. More and more, creditors are retaining the services of attorneys to file lawsuits on their behalf in civil court...Ira Leibsker, a Chicago collection attorney, estimated that there were 'probably tens of millions of lawsuits' underway at that time. That same year, a single company, Encore Capital Group, filed 375,000 suits in the United States. According to 'Debt Deception,' a report published by the Legal Aid Society and several other advocacy organizations in May 2010, the 26 largest debt buyers in New York City filed 457,322 lawsuits from January 2006 through July 2008."

"Part of the problem stems from the way the debt buying industry has evolved over the last 20 years. As recently as the early 1990s, many credit card issuers made little effort to collect on their past-due accounts. If a cardholder missed a payment or two, in-house collection efforts would generally follow. But when a cardholder hadn’t made a payment in 180 days, issuers tended to 'charge off' the delinquent account against earnings, settle for the tax break, and pursue collection efforts no further...[n]ow there are companies that purchase portfolios of delinquent debt for pennies on the dollar, then attempt to collect."

"Debts migrate from seller to buyer, often with very little information attached to them. 'What they’re buying is a spreadsheet full of data: names, addresses, account numbers, and balances,' says Fred W. Schwinn, an attorney at Consumer Law Center, Inc. in San Jose, California...in the bulk of these cases, defendants don’t show up and the judge simply issues default judgments against them. In many instances, they fail to show because they’re hoping haplessly to avoid paying debts they owe. In others, they simply don’t know they’re being sued."

"While statutes of limitations differ from state to state, more than half give creditors just three to five years to sue debtors for non-payment. If they miss that window, a debtor is under no legal obligation to repay his debt."

"If a creditor sues and obtains a judgment, however, any ideals of republican independence, fresh starts, and forgiveness quickly go out the window. In California, for example, judgments are enforceable for 10 years, then renewable for another 10 years, then renewable after that under certain conditions. Interest accrues at 10 percent per annum, wages can be garnished, bank accounts frozen, property seized. A debt originally incurred by someone whose name is similar to yours can become a lifelong commitment, simply because you ignored a few letters from a company whose name you didn’t recognize that said you owed it money. That’s a worst-case scenario, but as cases get rubber-stamped by judges and clerks auto-piloting their way through the daily deluge of lawsuits, it happens...[w]hen a judge issues a judgment against a debtor, the debtor is supposed to complete a financial disclosure form that will provide the information a creditor needs to collect his debt. If the debtor fails to do this, the creditor can obtain a court order compelling the debtor to show up in court to explain why he hasn’t. If the debtor fails to show up for this hearing, a judge can issue a contempt of court order and a warrant for the person’s arrest...[w]hile the official charge is contempt of court, judges sometimes set the bail to the exact amount the debtor owes. When he pays it, it can go straight to the creditor’s coffers."